Bitcoin and Money

I am not a Bitcoin fanboy. But most people discussing Bitcoin, both for and against, really don’t know what they are talking about. Take Washington Post reporter Matt O’Brien, for instance. He writes:

Sometimes it’s hard to tell whether Bitcoin is more like Ponzi scheme or a pyramid scheme. Whatever it is, though, it isn’t a currency.

As you read through the article, the logic is essentially, Bitcoin cannot be a commodity because everyone treats it like a commodity. I think it is more likely the author thinks he understands economics because he does not understand economics. Five minutes with Mankiw or Mishkin and you’ll know money has three properties:

It is a medium of exchange,

It is a store of value, and

It provides a unit of account.

I am not sure which property O’Brien thinks Bitcoin fails to satisfy, because his argument is grounded in pop psychology, rather than economics. Then things get weird.

O’Brien claims the energy necessary to manage the Bitcoin network generates pollution and that’s a public problem. I am not sure if he is aware of the energy necessary to maintain other transaction systems. Banks run large computers and tills everywhere require electricity. And the paper for printing bills, receipts, and money itself doesn’t grow on trees.